The exchange rate of the U.S. dollar and Mexican peso is a hot topic amongst the manufacturing world and has caused an increase in nearshoring to Mexico due to this discrepancy. OEMs can greatly benefit from the value of the Mexican Peso compared to that of the U.S. dollar by manufacturing in Mexico and reducing production costs.
What is the current U.S. dollar to Mexican peso exchange rate?
Over the past eighteen months, the Mexican Peso has devalued against the U.S. dollar by approximately 50%. Currently, the value of one Mexican peso is equal to approximately $.053U.S. Dollars. Most financial analysts expect the exchange rate to begin stabilizing due to the Mexican government's recently implemented monetary policy, as well as the potential for the U.S. dollar to lose a little strength after many years of gains.
How does this exchange rate benefit U.S. companies manufacturing in Mexico?
U.S. companies manufacturing their products in Mexico need to pay most of their operating expenses, especially labor, in pesos, effectively lowering these costs. Most American manufacturing companies moved to Mexico to take advantage of lower labor costs in Mexico and the favorable exchange rate only improves their situation.
How does this affect different regions of Mexico?
While the exchange rate remains the same throughout Mexico, Mexican employees along the border regions tend to be more sensitive to the exchange rate. In cities like Tijuana, retail stores and restaurants will often raise their prices as the Peso deflates against the U.S. dollar. That said, wage inflation along the border has increased at a faster rate than any other region in Mexico.
Are there negative consequences to the dollar's strength against the peso?
The single largest negative consequence of a weak Mexican Peso against the U.S. dollar is wage inflation. As the Peso weakens, especially along the border regions, U.S. companies manufacturing in Mexico are forced to increase its employees' salaries. If the peso strengthens in the future, it will be difficult for companies to reduce wages in Mexico to previous levels, which poses a risk. Historically speaking, however, there is a long-term trend of the Mexican peso weakening against the U.S. dollar.
How can you ensure a smooth transition into manufacturing in Mexico?
North American Production Sharing Inc. (NAPS) views manufacturing in Mexico as the most logical choice in the sense of saving on transportation costs from China through near-shoring as well as lowering production costs due to the current value of the Peso. NAPS offers administration and compliance management, allowing the client to remain in control of all manufacturing processes, quality, productivity and intellectual property. For OEMs, NAPS makes the transition to Mexico as smooth as possible, handling administrative workflow and ensuring operations are in compliance with Mexican and international business laws.
Leave a comment below to let us know how you think the Peso's value will affect manufacturing in Mexico.
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